My wife and I just refinanced our home. Five years ago my wife refinanced the same house, and at that time the lending bank strongly suggested that she also take out a home-equity line-of-credit on the home. Even though my wife has not used the line-of-credit and has paid the yearly fee for the account, at the closing for the new mortgage with the same bank, the bank is charging $450 to close the home-equity line-of-credit for the old mortgage. The closing title person, who is not an employee of the lending bank, said that the practice of charging a large fee to close a home-equity account was not uncommon but was a questionable practice. I would like to get some feedback on this before I approach the bank about this fee, which I think is exorbitant.
Secondly, I would like to know what would be the advantage or disadvantage of making a large payment on this ten-year mortgage. The payment that I am talking about is about two thirds of the mortgage. I had some money in a bank CD (certificate of deposit), but because the interest rates are so low, I am thinking that it may be wiser to apply this money as a home mortagage payment, since the mortagage interest rate is higher than anything that I can get in a current CD. I am not considering other investmnet opportunities for this money. Are there disadvantages of making a large payment on a home loan?
Pay it off. Pay it off now. The only one who profits from a mortgage is the lender. If you don’t need a line of credit account, pay the fee and never open another one. It is just another money grab by a bunch of blood sucking bankers.
The short answer is there are NO, NO, NO disadvantages to truly owning your home and retiring a debt. Period.
The long answer is also NO.
The following is culled from listening to Dave Ramsay, a personal financal talk show every day on the radio. Folks call in every day with similar questions.
Would you borrow money against your house to put in a CD?Don’t even count the interest paid on the loan vs. interest drawn on cd. Of course not. It’s the same thing.Think about it. You can pay that down on the loan and be the owner of your home that much quicker.
Some will ask, what about the tax savings?If you do the calculations why would anyone owe/keep thousands in debt and pay interest just to save a small amount on taxes if you itemize.
Pay the cd on your house! No debt is a good thing and no debt on your house is the best. You are thinking correctly. What on earth could be a disadvantage to owning it free and clear that much sooner?
The closing title person, who is not an employee of the lending bank, said that the practice of charging a large fee to close a home-equity account was not uncommon but was a questionable practice. I would like to get some feedback on this before I approach the bank about this fee, which I think is exorbitant.
I’d “pitch a fit” over this. Before I pitched the fit, I would talk to someone and get some hard facts to throw at them about a fee to close something I didn’t want and didn’t use.
Why not apply the CD to the balance before you refinance? That way your loan principle will be smaller and so will your payments…making it that much easier to speed up paying off the final loan. The only caveat is that you sometimes pay more for smaller loans. When my husband and I refinanced the last time, we ended up not paying off as much upfront as we’d planned, since that would have pushed the loan into a smaller loan/higher interest category. So we paid the balance of it after the closing, thus reducing principle, shortening the loan and reducing the total interest paid.
Don’t know about fees to close home equity lines of credit, but it sounds dodgy to me. Can you close it without penalty before the closing, so it’s not on the table as part of the re-fi transaction?
We had a similar experience with the equity line of credit. They pushed really hard, said there was no cost to it, no downside, blah, blah, blah. We refinanced within a few months, but the LOC didn’t disappear. The old mortgage company kept killing trees and sending us statements every month saying there had been no activity. After a couple of years, I called and asked that it be closed. It was a difficult process, and it cost something. It wasn’t anything like $450, but it may have been 50 bucks or so.
Never again.
As for paying down, check your note. I hadn’t realized it till the recent credit debacle, but evidently some states still allow lenders to impose penalties for early payment. If there are no penalties, definitely go for it.
Remember that the Banks are making their own rules these days and Congress just rubber stamps them. If you haven’t seen any of the NOW, Frontline or Bill Moyers shows on PBS on the credit and housing crises you might want to check these out in their archives. Also, savehaven.com, financialsense.com, BullNotBull.com have all sorts of contrarian wisdom on our failing economy and how it affects the individual. The Banks don’t care. They don’t have to.
Depending upon where you live your loan to value may be good or just barely above water and getting worse. In this concept what to do with that money depends upon what you will get out of it. Do you put $100K into paying off a house only to see it lose $100K in resale value in the next year or do you keep from getting underwater? Do you use that money simply to reduce your overhead and get more of your life back? Or do you use it to invest in a hard and generally appreciating asset that preserves your wealth such as actual gold (you can buy Eagles, Kruggerands, etc. at coin dealers usually $20-40 over spot)? Or do you invest it in your flute business?
If it was me I would split the difference and get some gold with part of it and pay down my overhead with the other part. The economy is failing faster than most are aware of and anything that hardens one position for survival is a good strategy.
We just refinanced in December, getting rid of credit card debt that arose when I was out of work from being sick from Lyme Disease. Borowed a little bit extra to get our house finished (and easier to sell if we decide to get out of this miserable climate). We still have over 50% equity and we are in an area that didn’t bubble as much unlike the rest of Seattle. The car (Toyota Corolla at 37 mpg) is paid off. But now we are looking at student loans for my daughter who is off to art school in the fall. In the last month the number of flute orders per month has plummeted as people buy rice and fuel instead. I’ve been buying wood for flutes when I can afford it as well as silver for keys and rings when the price is low and sending in the scrap for credit (yield of 75%) when the price is high. Am restoring my bicycles for the cheapest transportation and am putting up wood for heat for next winter already (we normally heat with an oil fired radiant floor). One of the local Farmers Market farmers is using one of our pastures to put in a large garden and we’ll get a share of the crop as needed - as well as an important first year of tillage. I am building a season extending greenhouse and planning to grow overwintering vegetables. There are few bees so I am hand pollinating my fruit trees - this usually increases the yield by 500-1000%. Our Stimulus Package check will go right back to the IRS as quarterly taxes - due over a week ago.
I suggests going to FinancialSense.com and listening to their Saturday webcast. The one from a few weeks ago featuring John Williams of shadowstats.com was particularly worrying. Weimar-like times and we will soon be imitating Albania when their government backed Ponzi scheme failed. It will be interesting to see if anyone is buying flutes in this environment.